environmental reporting in italy: current practice and future developments

Business Strategy and the EnvironmentBus. Strat. Env. 9, 211–223 (2000)

ENVIRONMENTAL REPORTINGIN ITALY: CURRENT PRACTICEAND FUTURE DEVELOPMENTS

Giuliano Noci*

Department of Economics and Production, Politecnico di Milano, Italy

Over the last few years, state of the artliterature has widely acknowledged theimportance of environmental reportingto improve a company’s ‘green’ imageand its relationships with stakeholders.In this respect, many empirical studieshave been carried out in NorthernEurope to investigate whether and howenvironmental reporting is growing inquantity and quality. In contrast, therehas been almost no debate on theevolution of such practices in countrieswith a more limited environmentalawareness.

In the light of these issues, the paperattempts to clarify the relevance and theeffectiveness of environmental reportingin Italy. Specifically, it aims to (i)discuss, by means of an empiricalinvestigation, current practices inenvironmental reporting, (ii) analyse theperformance of the published reportsand (iii) suggest how environmentalreports should change in the future toconform better with the stakeholders’informational requirements. Copyright© 2000 John Wiley & Sons, Ltd and ERPEnvironment.

Received 7 January 1999Revised 17 June 1999Accepted 9 September 1999

INTRODUCTION

Over the last few years, state of the artliterature (Adams, 1992; Blaza, 1992;Owen, 1992; James and Bennett, 1994;

Deegan and Rankin, 1995; Lober et al., 1997)has widely acknowledged the importance ofenvironmental reporting to improve a compa-ny’s ‘green’ image and its relationships withstakeholders (shareholders, employees, publicinstitutions, local communities, etc). In con-trast, some recent empirical investigations(Azzone et al., 1997a,b; Deloitte, 1997; KPMG,1997) highlighted that few companies discloseinformation concerning their environmentalmanagement practices and results. Those thatdo usually have significant problems withlocal communities and see the environmentalreport as a means of demonstrating to ‘pres-sure groups’ their efforts in the environmentalfield.

The limited concern of the business com-munity for environmental reporting high-lights that managers do not yet appreciate theopportunities offered by the disclosure of en-vironmental information. In particular, themajor determinants of the companies’ reluc-tance to use systematic environmental report-ing are (i) poor awareness of the benefitsresulting from environmental communicationand (ii) a lack of effective standards for thedesign and the organization of the document.

* Correspondence to: Prof. Ing. Giuliano Noci, Dipartimento diEconomica e Produzione, Politecnico di Milano, Piazza L. daVinci, I-20133, Milano, Italy.

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G. NOCI

Hence, in the managers’ view, costs resultingfrom the publication of environmental reportsare too high with respect to benefits. What theyfail to take into account is the following:

– effective communication on environmentalissues can improve the corporate imagewith public opinion and customers, thusallowing the company to increase its marketshare (FEE, 1995; Gray et al., 1995; Welford,1996);

– pro-active firms are introducing certifiedenvironmental management systems. Mostof these schemes (ICC Business Charter forSustainable Development, CERES Princi-ples, EMAS, ISO 14001) strongly encouragecompanies to produce environmental re-ports (Azzone et al. 1996);

– the disclosure of environmental informa-tion may become mandatory (Welford,1996), meaning that companies that are nowpro-actively communicating their environ-mental performance may gain a competi-tive advantage by virtue of the know-howdeveloped in environmental reporting.

Within this framework, many empirical stud-ies (Clausen and Fichter, 1996; Ljungdahl,1996) have been carried out in Northern Eu-rope to investigate why the practice of envi-ronmental reporting is not spreading and thequality of reports improving. In contrast, therehas been almost no debate on the evolution ofsuch practices in countries with a more limitedenvironmental awareness. In the light of theseissues, the paper attempts to clarify the rele-vance and the effectiveness of environmentalreporting in Italy in the following way:

1. discussing, by means of an empirical in-vestigation, current practice in environ-mental reporting adopted by Italianmanagers. The study considers a sample of14 firms operating in sectors of varyingenvironmental impact (automotive, chemi-cals, electronics, energy, mechanical engi-neering, paper, pharmaceuticals, plastics);

2. analysing how the published reports per-form with regard to (a) reliability, rele-vance and completeness of the disclosedinformation and (b) possibilities to de-velop benchmarking. Any major deficien-

cies in the organization and content of thedocument and the calculation of environ-mental performance indicators will bepresented;

3. identifying the key drivers of the operat-ing solutions adopted by managers in thedesign of the environmental report. In par-ticular, the role of external factors, such asstakeholder pressure and of internal vari-ables such as external communication ob-jectives and main characteristics of thecompany operations and the available per-formance measurement system will bediscussed.

The paper is divided into three sections. Thefollowing section analyses the researchmethodology. The next section discusses thekey findings of the empirical investigation.The final section presents future develop-ments in environmental reporting practice.

THE OBJECTIVES OF THEEMPIRICAL INVESTIGATION

The empirical study focused on firms operat-ing in Italy who have disclosed environmentalinformation over the last four years.

The research methodology

The empirical investigation has been devel-oped on a limited number of firms (14). Twomajor reasons explain this choice.

– The complexity of the subject. The disclosureof environmental information entails a com-plex decisional process involving the orga-nization of the document and the selectionof the relevant indicators. Hence, a com-plete understanding of the company’s ratio-nale in the design of the environmentalreport requires direct interviews with thepeople responsible for the document andmore than one visit to the company toorganize the case study.

– The limited number of firms in Italy that pro-duce an environmental report presenting theenvironmental impact of their ‘Italian opera-tions’. In 1996–97, only 30 firms producedsuch a document for external publication(Azzone et al., 1997a).

Copyright © 2000 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 9, 211–223 (2000)

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ENVIRONMENTAL REPORTING IN ITALY

Each case study is supported by a question-naire compiled by the environmental managerand/or producer of the report.

The sample

Domestic companies and foreign firms pub-lishing a special document presenting theirenvironmental programmes and the perfor-mance of their Italian sites are considered inthe sample. To distinguish the distinctive fea-tures of environmental reporting practice inItaly, multinational companies that simplytranslate the corporate report (showing Eu-ropean and/or global activities) into Italian(Rohm & Haas, Tioxide, Total, etc) are notincluded.

The sample adequately represents the Ital-ian situation, since it includes most of thefirms in the country disclosing environmentalinformation. Table 1 shows that companiesfrom sectors with a varying environmentalimpact are included. It therefore includes pio-neering firms, which, under pressure fromstakeholders, have developed systematic envi-ronmental reporting practices.

The empirical approach is based on theprecursor events method (Jantsch, 1967; Jonesand Twiss, 1978), identifying future trendswith reference to current phenomena that an-ticipate, in a specific and limited situation, theexpected evolution of a broader context.

The sample includes

– chemical companies, which are understakeholder pressure owing to the highenvironmental risk of their activities,

– oil industry firms, which could be consid-ered a main target of NGO actions becauseof the damage caused to the eco-system byexploration, extraction, refining etc,

– a corporation from the automotive sectorbecause of the significant emissions result-ing from car usage,

– energy (electricity and gas) producingfirms, which are progressively becomingthe target of public opinion and pressuregroups in view of the emissions of theiroperations,

– companies operating in the electronics in-dustry, which are now facing the problemof designing effective solutions for thetake-back and recycling of end of life prod-ucts (white goods and other householdappliances) and

– firms working in the pulp and paper in-dustry, which public opinion has tradition-ally seen as major polluters.

The research framework

Each case study uses a framework thatconsiders

– the context in which a firm operates,

Table 1. The sample companies.

Industrial sectorFirm Turnover (1996)Employees (1996)(billions IL)

13 016Agip 8317 Oil refiningBayer Italy 3900 3136 Pharmaceuticals

2377Bracco Pharmaceuticals1493Cartiere Favini Pulp and paper45240

268400Ciba Specialty Chemicals ChemicalsEnergy17621324Edison

37 00094 000 EnergyEnel10 228Enichem Chemicals16 389

237 865 77 923 AutomotiveFiat9000 7734 ElectronicsIBM

Energy44559480Italgas1288 630 ChemicalsMapei

Mechanical engineeringSKF 15945000Chemicals11002500Solvay Italy


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– the structure and the content of the envi-ronmental report and

– future management’s objectives in environ-mental reporting.

The analysis of the external contextEach interview focused on the identificationof (i) the key actors encouraging firms todisclose environmental reports, (ii) the targetaudience of the document and (iii) the objec-tives associated with its publication.

An analysis of responses reveals a compa-ny’s communication strategies and their im-plications on the structure of the report.

The analysis of the structure and contentsof the environmental reportIn line with the extensive literature on envi-ronmental reporting (James and Bennett, 1994;Azzone et al., 1996; Schaltegger et al., 1996),the study attempts to clarify how the pub-lished reports perform with respect to thefollowing:

– reliability of the data, i.e. the managementteam must be able to justify objectively thereported data;

– comparability of the document, i.e. bench-marking with respect to competitors and/or the evolution of a company’s envi-ronmental reporting practice over a giventime. In this respect, it is important that thecompany adopt the same environmentalperformance indicators over time, i.e. forthe production of different environmentalreports;

– relevance, i.e. consistency with stakehold-ers’ informational requirements, and

– understandability, i.e. clarifying how differ-ent quantitative indicators are calculated.

Given this framework, each report has beenanalysed in terms of the following:

1. The organization of the information. The re-search focus was on identifying the formof the publication (paper, Internet, mag-netic disk), the data aggregation and thelevel of detail. In this respect, it must benoted that decisions concerning data ag-gregation are influenced by the company’starget audience: greater attention to mea-

sures showing the environmental perfor-mance at a site level means, for instance,that the company seeks to communicate itsresults to local communities (Roberts,1992; Rikhardsson, 1994; Azzone et al.,1996; Schaltegger et al., 1996). On the otherhand, the level of detail achieved in theenvironmental report affects two othercritical areas of performance.– Relevance of the document. The published

data must be consistent with the stake-holders’ information requirements.

– Data reliability. The publication of a de-tailed picture of corporate environ-mental performance (e.g. data onair emissions, solid wastes, energyconsumption etc) prevents manage-ment from concealing eco-inefficiencythrough aggregate data.

2. The content. The presence of (a) clear objec-tives, (b) an input/output analysis describ-ing the process material flow, (c) a specificsection(s) aimed at establishing an effec-tive dialogue with stakeholders and (d) athird-party verification and audit repre-sent the basic elements in the design of thereport.

3. The disclosed indicators. In this respect, theempirical investigation attempted to iden-tify the most common practices in terms of– classes of measures published in the

report, i.e. physical indicators, eco-nomic measures, compliance indexesetc and

– operating solutions developed to calcu-late each indicator. In particular, it iscritical to check (1) whether the man-agement team adopt standard solutionsfor the calculation of the indicators overtime (for the production of differentreports) and (2) how managers calcu-late different measures expressing the(economic and environmental) results.In this respect, the basic options avail-able are an absolute measure, expressinghow the firm performs in relation to aspecific environmental impact (emis-sions, wastes etc), or a relative indicator,relating a given measure (e.g. air emis-sion) to a variable indicating the levelof corporate activity (e.g. turnover,value added etc).


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Future objectives in environmentalreporting practiceFinally, the questionnaire seeks to identifyfuture trends in environmental reportingpractice. Managers were asked whether thecompany planned to increase the frequency ofpublication and the level of detail disclosed,and/or to change the type of data included inthe report, e.g. augmenting the importance ofquantitative with respect to qualitative data.

THE RESULTS

The lack of standard environmental reportingpractices has resulted in a broad range ofoperating solutions for the disclosure of envi-ronmental information.

The organization of the information

Three issues need to be taken into account.

The form of the publicationFour different solutions have been imple-mented by managers responsible for the pro-duction of the environmental report (Table 2).

Eleven firms disclosed environmental infor-mation in a single document, seeking to bal-ance the need for completeness with the costof document printing. In contrast, the solutionadopted by IBM is cost driven, reducing thenumber of hard copies and using the Internetto disclose environment-related information.In other cases (Ciba, Enichem and Solvay) thestakeholders’ demand for information on thecompany’s environmental performance was akey determinant. For Ciba and Solvay, this

resulted in the publication of separate docu-ments – containing different data – ad-dressed to distinct stakeholders. Enichemproduced an electronic version of the environ-mental report, thus trying to disclose informa-tion in a format consistent with thestakeholders’ requirements.

Data aggregationDecisions concerning data aggregation are ofmajor significance for the design of the report.The disclosure of average data, showing howa company performs at a country level withregards to a specific environmental impact,may conceal a low eco-efficiency of somesites. Hence, the more data are aggregated theless significant are the disclosed indicators forthose stakeholders wishing to understand indetail the environmental load of the variouscorporate activities.

Apart from firms with a single site (Table3), 58% of the sample companies disclose in-formation with a low level of aggregation. Inparticular, firms such as Bracco, Edison, Enel,Enichem and Mapei include indicators thatexpress the environmental performance ofeach site. On the other hand, Fiat and Italgaspresent emission and input figures for eachitem of their product mix.

Three main determinants can be identifiedto explain managers’ decisions on dataaggregation.

– The characteristics of production process tech-nologies. This clearly influences stakehold-ers’ concern for company operations. Mostof the chemical firms disclose informa-tion at a site level, thus providing local

Table 2. Means of publication of the report.

FirmsForm of publication

IBMReport available onpaper and on theInternet

Distinct documents Ciba, Solvayaccording to content

Hard and disk copy EnichemSingle document Agip, Bayer, Bracco,

Edison, Enel, Favini, Fiat,available on paperICI, Italgas, Mapei, SKF

Table 3. Data aggregation in the sample.

Sample solutions for data Firmsaggregation

Firms with one site in Ciba, Cartiere Favini, ICIItaly

Aggregation of data at a Bracco, Enel, Edison,Enichem, Mapeisite level

Aggregation of data at a Agip, Bayer, IBM, Skf,country level Solvay

Aggregation of data at a Fiat, Italgasbusiness unit level


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Table 4. The level of detail in the disclosure of environmental information.

Sample firmsDetail in the disclosedinformation

Energy consumptionHigh Agip, Enichem, Favini, Fiat, Italgas, IBM, Mapei, Skf

Bayer, Bracco, CibaLowNot included Edison, Enel, Solvay

Water consumptionHigh Agip, Ciba, Enel, Favini, FiatLow Bayer, Enichem, IBM, Mapei, SkfNot included Bracco, Edison, Italgas, Solvay

Waste waterHigh Bayer, Bracco, Enichem, Favini, MapeiLow Agip, Ciba, Fiat, SolvayNot included Edison, Enel, IBM, Italgas, Skf

Air emissionsAgip, Bayer, Enel, Enichem, Favini, Italgas, SolvayHigh

Low Bracco, Edison, Ciba, Mapei, SkfFiat, IBMNot included

Solid wastesHigh Agip, Bayer, Edison, Enel, Enichem, Favini, Fiat, IBM, Italgas, SkfLow Bracco, Ciba, Mapei, Solvay

ComplianceHigh Agip, Bayer, Bracco, Ciba, Enel, Edison, Enichem, Favini, IBM, Mapei, Skf, SolvayLow Fiat, Italgas

Economic measuresHigh Agip, Enichem, Favini, Italgas, Skf

Bayer, Ciba, Edison, Enel, SolvayLowNot included Bracco, Fiat, IBM, Mapei

communities with specific data concerningthe environmental results of the localplant. Management might also be seekingenvironmental certification under theEMAS scheme, which requires a publicenvironmental statement for each plant.

– The complexity of the product mix. It is clearthat firms producing different goods (e.g.the Fiat group) have been forced to dis-close environmental indicators expressingthe impact of each product. This allowsstakeholders to see all levels of eco-effi-ciency in the firm’s activities.

– The internationalization of the corporate activi-ties. Most of the companies publishinginformation at a country level aresubsidiaries of an important multinationalgroup.

The level of detailThe level of detail in the environmental reportis closely related to the number and the typeof indicators included in the document.

In this respect, the empirical investigationidentified a wide range of different practices(Table 4).

The least detail is given on economic issuesand only five firms disclose a complete pic-ture of economic results (operating costs andinvestments) in the environmental field. Thismay be due to technical problems that firmsare now facing in cost allocation (Azzone andNoci, 1996).

The findings reveal that decisions on thenumber and the type of indicators are theresult of the combination of three majorvariables:


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– the industrial sector in which a firmoperates,

– the level of eco-efficiency achieved by thefirm and

– the characteristics of the information systemused by the firm to collect and manageenvironmental data.

The sample companies provide greater detailfor those emission figures that are critical inthe light of the available technologies, thusseeking to improve their relationship with thetarget audience. Chemical firms, for instance,publish a complete picture for air emissionsand waste water, i.e. the most significant mea-sures of environmental management. Fiat,IBM and SKF provide stakeholders with moredetail on solid wastes.

On the other hand, pro-active firms – suchas Cartiera Favini, which implements aggres-sive ‘green’ marketing programmes and com-mits significant financial resources to cleanertechnologies – aim to provide stakeholderswith the most detailed picture of emissionand input figures, in an effort to differentiatethemselves from competitors.

Finally, owing to the newness of environ-mental reporting practice, some firms havenot set up specific databases to collect andmanage environment-related information.This is the case, for instance, of Mapei, whichcollects and publishes information on a singlesite, but in the future plans to increase itsdatabase for external communication.

Content

Following the above framework, the selectionof content must take account of at least fourvariables, i.e.

– the identification of the objectives to in-clude in the document,

– the publication of a picture on the compa-ny’s materials flow,

– the presence of a dialogue with stakehold-ers and

– third-party verification and audit.

The presence of objectivesThe empirical investigation revealed thatthere are two major types of environmental

report (Table 5): (i) documents aimed at dis-closing the results achieved by the company inthe environmental field; and (ii) publicationsreporting future ‘green’ (quantitative and/orqualitative) objectives.

It clearly emerges that the economic sectorand the corporate life cycle in environmentalmanagement (i.e. the number of years since acompany introduced environmental manage-ment programmes) play a critical role in cor-porate choices.

Firms operating in low impact industries(mechanical engineering) disclose the past re-sults. They have few opportunities to improvesignificantly their performance, hence theyavoid publishing statements on future ‘green’objectives, which may appear conservative. Incontrast, the chemical companies claim to usethe environmental report as a tool to legiti-mate their activities to external stakeholdersand, in consequence, they disclose aggressive‘green’ targets.

The introduction of quantitative and/orqualitative objectives in the document de-pends on the corporate life cycle in envi-ronmental management. Specifically, thosechemical firms, such as Bracco, that are still inthe early phases of aggressive environmentalmanagement disclose qualitative informationdescribing future objectives.

Finally, it is the author’s opinion that in thenear future environmental certification willdrive company decisions on the disclosure ofprecise and quantitative objectives. It is likelythat firms seeking to certify their environmen-tal management system under the EMASscheme will introduce quantitative objectivesin the environmental report. Such a solutiondoes not entail excessive marginal costs fordata collection, as they will be forced to

Table 5. Sample company practices in the disclosure ofcorporate objectives.

The disclosure of Firmsobjectives in the sample

Agip, Edison, Fiat, IBM,ResultsItalgas, Mapei, Skf

Quantitative objectives Ciba, Enel, Enichem,Cartiere FaviniBayer, Bracco, SolvayQualitative objectives


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publish an environmental statement, whichalready contains such information.

The presence of an input/output analysisInput/output analysis means a quantitativemethodology linking input and output flowsof material and energy and defining a balancebetween them. The introduction of this prac-tice in environmental reports allows a firm toprovide stakeholders with information on thelevel of eco-efficiency achieved by itsoperations.

In Germany, the publication of input/out-put analyses is common industrial practice(Clausen and Fichter, 1996; Schaltegger et al.,1996) and, given the strict regulations, Ger-man firms have well developed informationsystems to gather environment-related data.In contrast, the sample companies still have alimited interest in including an input/outputanalysis in their environmental report (seeTable 6).

This limited interest in the disclosure ofinput/output analyses can be explained bythree major drivers.

– The complexity of the product mix. In thisrespect, it must be noted that only thesample companies generating a singleproduct (AGIP, ENEL and Favini) publisha complete analysis of the input and out-put flows of material and energy. Manyresearch studies have demonstrated thatachieving environmental balance in firmswith significant variability in product mixis a complex task (Azzone et al., 1996).

– The presence of many sites and of inter-relatedflows among them. This requires data collec-tion at site level in order to develop input/output analyses for each site (this is the

case, for instance, in Enichem). Otherwise,corporate managers are forced to introduceactivity-based analyses to identify the envi-ronmental impact of different productsusing an LCA tool.

– The adoption of outsourcing policies. It is diffi-cult to develop a complete environmentalbalance sheet owing to the need to collectdata on input and output flows of up-stream and downstream stakeholders.

The dialogue with stakeholdersThe inclusion in the environmental report of asection aimed at establishing a dialogue withexternal stakeholders may have a significantimpact on the relevance of the disclosed data,since information could be revised annuallyaccording to key stakeholders’ information re-quirements. Six of the sample companies havenot introduced any form of communicationwith stakeholders (Table 7).

Such limited concern for an interactive dia-logue with stakeholders can be explained bytwo major factors.

– The life cycle of the company’s environmentalreporting practice. Two firms (Italgas andMapei) that did not include any form ofcommunication with stakeholders in thedocument published their first environ-mental report only recently.

– The perceived environmental risk of the field inwhich a firm operates. Most of the samplechemical corporations included a section inthe report aimed at favouring a dialoguewith stakeholders, thus endeavouring toimprove the level of acceptance of theirsites in local communities.

Table 7. Sample companies’ dialogue with stakehold-ers.

The dialogue with Firmsstakeholders

No dialogue Bayer, Bracco, CartiereFavini, Enichem, Italgas,MapeiAgip, Ciba, Edison, Enel,Indication of a telephone

number and/or email Fiat, IBM, SkfSolvayEnclosed message-card

Table 6. Input/output analyses in environmental re-ports of the sample companies.

The presence of Firmsinput/output analyses

Complete input/output Agip, Ciba, Enel, CartiereFavinianalysesBayer, Bracco, Edison,Publication of a partial

framework Enichem, Fiat, IBM, ICI,Italgas, Mapei, Skf, Solvay


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Table 8. Third-party verification of the report in thesample.

Agip, Enichem, Enel,Presence of a thirdSolvayparty verification

Absence of a third party Bayer, Bracco, Ciba,verification Edison, Favini, Fiat, IBM,

Italgas, Mapei, Skf

ness of the document. In this respect, most ofthe published documents lack

– the disclosure of relative measures, i.e. indica-tors expressing the ratio between an abso-lute environmental performance (forinstance, the quantity of COx emission, thequantity of solid wastes etc) and a variablefor the volume of company activity, and

– the publication of a complete framework show-ing the economic results achieved in the en-vironmental field.

These shortcomings are particularly criticalfor the effectiveness of the document, as ne-glect of the relative indicators may greatlyaffect stakeholders’ ability to compare reportsfor distinct periods. On the other hand, thelimited diffusion of economic measures usu-ally reduces the relevance of the document forexternal stakeholders, e.g. for the financialcommunity, which seeks to verify both thelevel of eco-efficiency and the impact of‘green’ programmes on corporate profit-ability.

Operating solutions for the calculation ofrelative indicatorsRelative measures allow readers to analysethe trend of corporate eco-efficiency overtime, while the disclosure of absolute indica-tors does not provide reliable indications,since the change in environmental perfor-mance could simply result from the alter-ations (increase or reduction) in volume.

The study demonstrated that most of thesample companies now publish relative indi-cators, even if they adopt different operatingsolutions (Table 9).

Third-party verification and auditThe certification of the environmental reportby an external auditor may greatly affect thereliability of the quantitative and qualitativeinformation disclosed, but most of the samplecompanies do not yet certify their reports.Only four corporations have external auditorswho verify their documents, while the othersdo not plan to introduce data-certificationpractices in the short term (Table 8).

The limited concern for the certification ofthe environmental report by an independentauditor is due mainly to the following.

– A lack of systematic tools to collect envi-ronment-related data and of efficient infor-mation systems for data management. Thisis the case in Bracco, Edison, Italgas andMapei.

– Management’s communication-based ob-jectives. The sample companies showingno interest in data certification aim to usethe collected information for internal pur-poses – i.e. for their management controlsystem.

In contrast, the decision to require third-partyverification is closely related to the aim tocertify the EMS. Indeed, there is a mutuallyreinforcing relationship between reportingand environmental management: the produc-tion of an environmental report can help acompany to evaluate its environmental pro-grammes, policies and performance morefully, as managers must organize, measureand present their entire set of activities.

The indicators

Many state of the art empirical investigationshighlight that the selection of the environmen-tal indicators to include in the report is one ofthe major problems determining the effective-

Table 9. The denominator of the relative indicatorsdisclosed by the sample companies.

The denominator of the Firmsrelative indicators

Quantity of end-products Agip, Bayer, Ciba, Edison,Enel, Enichem, Favini,Italgas, MapeiFavini, Skf, IBMOperating value added

Conversion costs FiatData concerning specific Agip, Fiat, IBM, Italgas

activitiesNo data Bracco, Solvay


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The choices can be explained in the light of(i) company product mix and (ii) the quality ofthe available information system to collect envi-ronment-related data. In particular,

– sample companies adopting the total quan-tity of end products achieved in the periodas the denominator usually operate in asingle business unit: AGIP, Bayer, Ciba,Edison, Enel, Enichem, Favini, Italgas,Mapei can be taken as firms producing asingle category of products;

– Favini (for specific indicators), IBM andSKF take operating value added and Fiatconversion costs as a meaningful denomi-nator. These economic variables allow thecompanies to consider jointly the contribu-tion of different products to corporateenvironmental load. Furthermore, thevariables do not bias environmental indica-tors by considering products that havebeen outsourced to other firms;

– for activities that represent the only sourceof a specific environmental impact, somefirms use a denominator expressing thevolume of this activity in the period. Inthis way, they are able to highlightwhether and how a change in a specificenvironmental load is due to a modifica-tion in the volume of the responsible activ-ity. In Fiat, for instance, air emissionindicators are calculated as the ratio be-tween absolute measures describing airemissions and square metres of paintedsurface.

In contrast, the major determinant preventingBracco and Solvay from disclosing a relativeindicator is the available information system,which does not allow managers to report andmanage environment-related informationeffectively.

The use of economic indicatorsThe empirical investigation corroborates theresults of other studies (Azzone et al., 1996;Clausen and Fichter, 1996; Ljungdahl, 1996).Table 10 shows that only two firms (Enichemand Favini) disclose economic data concern-ing environmental management. Most publishindicators highlighting their economic effortsin the environmental field.

This lack of economic data in environmen-tal reports is due to well known technicalproblems that have not been solved eithertheoretically or operationally. These relate tothe identification of

– the share that can be attributed to theenvironmental variable of an investmentimplemented to achieve various objectives(flexibility, productivity, eco-efficiency)and

– operating costs resulting from environ-mental management. These are often hid-den in other cost items, making it difficultto trace those overheads that can be con-sidered environmental costs.

FUTURE DEVELOPMENTS

The empirical investigation involved an inten-sive analysis in a limited number of firms.Nevertheless, most of the firms that have asite in Italy and produce an environmentalreport for their Italian stakeholders are con-sidered. Hence, the results can be taken asrepresentative of current environmental re-porting practice in Italy.

This study shows that management deci-sions on the design of the environmental re-port depend upon external and internalfactors. External variables are closely related

Table 10. The presence of economic indicators in the environmental reports.

Environmental costs No indicator‘Green’ investments

Agip, Bayer, Ciba, Enichem, Favini, Italgas, Skf,Agip, Bayer, Ciba, Edison, Enel, Enichem, Bracco, ICI,IBM, MapeiSolvayFavini, Fiat, Italgas, Skf, Solvay


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to stakeholder actions, i.e. local communities,public opinion, employees, the supply valuechain partners, public institutions and the fi-nancial community, which induce a companyto produce an environmental report. The in-ternal drivers concern corporate communica-tion objectives, the key characteristics of theoperations and the available informationsystem.

However, it is also clear that the expectedchanges in the competitive context will drivesignificant improvements in future environ-mental reporting practice. Gray et al. (1995)and Lober et al. (1997) underline some ele-ments that will have a key role in addressingoperating solutions adopted by companies inthe production of the document. These are thefollowing.

– Growing demands from stakeholders for moretailored information. The financial commu-nity might be concerned with environmen-tal spending and liability, customers mightcare about product attributes and packag-ing and a local community might wantinformation on plant emissions.

– The role of the environmental dimension in thecompetitive arena. Companies might beforced to achieve sustainable competitiveadvantages by introducing pro-active envi-ronmental management practices and, insuch a framework ‘green’ communicationcould be essential in improving the corpo-rate ‘green’ image with the targetaudience.

– The future importance of stakeholder manage-ment to achieve improved corporate per-formance, such as increased profits and/orproductivity. Better environmental report-ing could lead to improved employees’morale and self-motivation, faster approvalby regulators and a lower likelihood ofconfrontational relationships with environ-mental groups and local communities.

Consideration of these issues entails somemodifications to all the key design variablesin the environmental report:

– the organization of the information,– the content and– the type of indicators.

The organization of the informationThe enormous and extremely rapid diffusionof Internet technology among professionals –45% of WWW users are professionals (Vassos,1998) – and the extensive diffusion of envi-ronmental information on this world-widenetwork make electronic environmental re-porting an interesting opportunity for firmsseeking to publish their environmental policyand the results achieved in the environmentalfield. In particular, it is clear that an increas-ing use of the Internet as a distribution chan-nel might provide companies with significantbenefits in terms of reporting effectivenessand efficiency. Electronic reporting providesopportunities

– to define dynamic customized reportsbased on the informational requirements ofeach stakeholder visiting the site. The fun-damental hypertext feature of the WWWallows users to retrieve related information(by clicking on a highlighted word, phraseor image) as required. This does not, how-ever, mean that in the future companiesshould provide a static and detailed report(some users may be concerned by the anal-ysis of specific aspects of the corporateenvironmental load). It does suggest that ifa company has a good reason to showinformation on all aspects of environmen-tal impact it can do so and users can selectbetween a general overview or in-depthanalyses including charts and graphs. Allusers have the same interface, but eachassembles the desired document from theavailable information;

– for a global presence, allowing companiesto reach a huge potential audience withlimited economic efforts. In this respect, itis likely that not only large corporationswith significant market visibility, but alsosmall firms will share environmental infor-mation with a world wide audience.

However, electronic communication may alsoprovide firms with a significant improvementin the efficiency of the environmental reportingpractice. More precisely, the use of the Inter-net could lead managers to do the following.


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– Reduce the costs for the disclosure/distributionof environmental information. In operatingterms, electronic reporting can be consid-ered an efficient solution since it provides(a) the potential to reach an enormous(world-wide) audience without the costs ofprinting a paper document and (b) theopportunity to reduce computation costsassociated to the management and publica-tion of environmental data by exploitingan Intranet, e.g. a technology based on theTCP/IP protocol allowing managers to usethe collected data for external communica-tion (Cronin, 1997).

– Facilitate data updating. Not only can com-panies publish exactly the kind and theamount of information that seems appro-priate, they can also release this informa-tion when it is important to do so. Inoperational terms, this means that they canpublish selectively and immediately with-out altering other information.

– Determine how many people read the report,who reads it and what parts of the report areread. The interactive nature of the Internet(e-mail, online forms for users etc) meansthat companies can solicit additional feed-back more easily and so make changes toreports as required.

– Support managers in efficient benchmarking-based analyses. The Web makes environ-ment-related information and reports fromother companies easily available.

ContentsThe empirical investigation demonstrates thatmany firms still provide stakeholders withonly a partial framework of their environmen-tal performance. This study has identified twomajor deficiencies in report content.

– The limited diffusion of mass balance analyses.Their introduction should be an importantobjective, as together with the absence ofthird-party verification they adversely af-fect data reliability.

– A limited attention to the disclosure of infor-mation aimed at clarifying the company’s im-pact on the eco-system (in terms of ozone layerdepletion, eutrophication, acidification etc).This results from the operating complexity

of LCA-based tools, which require a hugeamount of data to convert environmentalfigures into impacts on the state of naturalresources. In fact, most firms operating inItaly are not responding to the growingstakeholder concern for a sustainable soci-ety (Taylor, 1994; RSA, 1995; Shrivastava,1995; Someren, 1995; Welford, 1995).Hence, the disclosure of quantitative indi-cators showing the corporate contributionto sustainable development is fundamentalfor firms aiming to increase their ‘green’image and gain a competitive advantagewith respect to competitors.

IndicatorsTwo major improvements appear relevant forfuture environmental reporting practice.

First, the disclosure of economic informa-tion in the environmental report is critical, inorder to clarify the impact of environmentalmanagement on the company profitability inthe long run. The publication of such informa-tion allows the firm to satisfy the growinginterest of the financial community in theimpact of environmental issues on share-holder value. Unfortunately, the inclusion ofeconomic indicators in the document is notyet common practice. Managers must takeaccount of the need to collect systematicallyand disclose more information on quantitativeindicators, detailing ‘green’ investments, thecosts and the change in revenues resultingfrom environmental management. From anoperational viewpoint, this requires modifica-tions in the corporate information systems inorder to distinguish environment-related eco-nomic items from other economic variables.

Second, it is important that in future publi-cations all companies adopt effective operat-ing solutions for the disclosure of relativeenvironmental indicators. The adoption of adenominator that effectively defines the vol-ume of corporate activity – such as economicvalue added – is crucial to the credibility ofthe report. The inclusion of such indices in thedocument allows stakeholders to analysecompletely the trend in a company’s eco-effi-ciency, comparing changes in the level of en-vironmental load with modifications in thevolume of corporate activity.


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BIOGRAPHY

Professor Giuliano Noci can be contacted atthe Department of Economics and Production,Politecnico di Milano, Piazza L. Da Vinci 32,20133 Milano, Italy.Tel.: +39 2 23992767; fax: +39 2 23992720.E-mail: [email protected]


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